Transshipment and Domestic Canadian Maritime Regulation

Canada has some 1,600 pages of maritime regulations that were formulated prior to the construction of the St Lawrence Seaway. Modern container transshipment exposes regulatory shortfalls along the Seaway.

Canada responded to America’s introduction of the Jones Act in maritime transportation with maritime regulations aimed at protecting domestic Canadian maritime transportation from competition. Potential for competition from American carriers was high on the Great Lakes and on the Pacific coast where American ships sailed to and from Alaska. During the pre-Seaway era, Canada and America operated their own separate navigation canals that linked the Atlantic Ocean to the Upper Great lakes. The St Lawrence Seaway allowed larger ships access to the Upper Great Lakes and opened an American port on the Upper St Lawrence River, at Ogdensburg, NY.

Transportation Economics

The biggest ships on the ocean entail the lowest transportation cost per container. It has become less costly to sail a giant size ships for 80 percent of the distance between major distant ports where cargo is transferred to and from multiple smaller vessels that sail to multiple smaller ports. Maritime ship-to-ship transshipment and transshipment terminals evolved from the development of super-size ships. Plans are underway in Cape Breton, Eastern Canada, to open a container transshipment terminal capable of servicing the largest container ships on the ocean, with opening expected in 2018 or 2019.

The Port of Newark, New Jersey recently opened to service the largest container ships afloat, except that most of the transfers at Newark are intermodal, the result of major highways and major main railway lines connecting directly into the port. Newark connects to a population of 30 million people with cost-competitive overland connections that extend into Canada. If Canada’s federal transportation agencies, Transport Canada and the Canadian Transportation Authority choose to enforce Canada’s traditional maritime regulations in this modern era, such action could divert a substantial amount of Canadian bound containers through American ports.

American – Canadian Competition

While some customers pay premium prices for faster delivery of containers, other customers are willing to delay arrival of their containers by four days of a 17-day voyage in order to save on transportation costs. For American east coast customers, the Neo-Panamax slower boat from East Asia will sail through the expanded Panama Canal to east coast ports such as Newark, Jacksonville, Savannah and Port of Virginia (Norfolk and Newport News) that can also operate as a transshipment port for containers destined for Canadian ports located along the St Lawrence Seaway.

Newark is located closer to South Ontario and to Montreal than any of Saint John, Halifax or Cape Breton. A mega-size container ship could transfer containers to American bound ships sailing for Boston, Portland, Bangor, Detroit, Chicago, Duluth, Cleveland and Ogdensburg, NY. Ogdensburg is located south of Ottawa and about two miles across an international bridge from a major east – west Canadian motorway while Detroit is located across an international bridge from Windsor, ON. Several major logistics distribution warehouses are located across Eastern Ontario and close to Ogdensburg, with major Southern Ontario destinations being located near Detroit.

Competition and Regulation

Neither the Canadian Transportation Agency nor Transport Canada has any jurisdiction over container transportation moving from Cape Breton super-port to American ports. Any attempt to restrict truck traffic carrying containers from the U.S. into Canada could elicit a response from Washington. 

Quebec’s independence movement could question higher transport costs of containers aboard larger ships sailing from Cape Breton to Port of Montreal than into Eastern Ontario via Port of Ogdensburg using much smaller ships and trans-border trucks. During winter, it would cost less to move containers to Toronto via Port of Newark and the shorter railway connection.

While political forces in the U.K. seek to exit the European Union through the Brexit initiative, Canada has entered into a Canada – European Union with the Comprehensive Economic and Trade Agreement (CETA) that includes maritime transportation. Except that the ship that sails into Newark can carry five times the number of containers than the ship that sails into Montreal, with the 2,200-TEU Maersk Pembroke class container ships regularly sailing the Montreal – European service along with a ship of 4,000 TEUs. Cape Breton super-port represents Asian trade, not European trade and may operate outside of CETA. 

Market Protection

To remedy the situation of a single railway company having a ‘monopoly’ on container transportation between Eastern and Central Canada, transportation officials approved DP Ports expanding the Port of Saint John, New Brunswick to serve neo-Panamax ships. A competing railway operates a line between Montreal and Saint John, via Maine. Except that the railway distance between Montreal and Newark is slightly shorter. Canadian regulations may originally have intended to balance competition between maritime and railway transportation, except that changes and developments in international transportation now present a challenge to government transportation regulators.

Around 2010, two transportation research groups independently compared railway versus maritime container transportation costs. To move 100 containers between New Orleans and Pittsburgh, a shorter railway distance incurred higher per container transportation costs than a river barge navigating 21 locks. Moving 5,000-TEU between Long Beach and Memphis, maritime incurred a savings of some $2,000 per container over trains despite covering 2.5 times the distance sailing via the Panama Canal and incurring a transit fee of $200 per container. Railway and maritime distances are identical between Cape Breton and Montreal, with a single navigation lock at the Strait of Canso and none at Sydney.

Protecting Jobs

The maritime employees unions support traditional transportation as it offered them job security. Except that automated ports are now on the horizon. Advanced telecommunications allows doctors to remotely perform medical operations and also allows for remote operate of dock cranes. The convergence of technologies of super-size container ships, transshipment ports and autonomous ship operation along with remote and automated crane control will require that dockworkers be retrained for alternative occupations. These changes also create an operating environment that can bypass (Canadian) government economic regulation of some aspects of maritime transportation and expose regulatory shortcomings.

The American horse-drawn stagecoach industry appealed for government to protect their market from competitive pricing by the evolving railways industry. Despite government obliging and imposing regulation on railways transportation, the horse drawn stagecoach industry became extinct. Many changes have recently occurred in international maritime container freight transportation and place government regulators in the role of seeking to protect the commercial interest of the equivalent of a modern horse drawn stagecoach industry. While it may be politically unpalatable to exempt domestic maritime transportation between Cape Breton and Canadian inland waterway ports from regulation, American trans-border competition bypasses such regulation.

Conclusions

Most of the 1,600 pages of Canada maritime regulation pre-date both the construction of the St Lawrence Seaway and the development of container-based freight transportation.